Should You Invest in a Startup?

Things to look for in a start-up before investing in it

Scalability

The term scalability refers to the company’s ability to increase its revenues while maintaining the expenses at low levels, thus creating a considerable margin. The scalability of a given company depends on how many resources are under use. The business model of a start-up should be favorable to the employment of resources at minimal costs.

Some businesses end up hiring a lot of personnel during the initial stages and throughout the operations which drains the company of financial muscle and can lead to a downfall. An excellent example of a scalable business is one where the primary focus is on the manufacturing of razor blades. In such a model, the costs incurred are low, the products move fast and the expert time required is minimal.

The attractiveness of the venture

An exit strategy should show how much you will get if the company does not operate as well as you had hoped. This calculation should be based on the money invested; the stock in your name and at how much the start-up sells.

Returns on exit

Once you have acquired the funds you require to set up your company; you can now get started with dealing with the legal aspects of it. The best place to start is by naming it while keeping in mind that the choice you make can lift you to high levels or end up being your downfall. Many people who do not give much thought to this step end up regretting that decision in the times that follow.

The management

Given that you are putting your trust and money into a company, you must ensure that the enterprise gets run by competent individuals equipped with the necessary skills to successfully run a business. The team can be starting out for the first time and to gauge their competence; you can go through their strategies and see whether they are heading towards the right direction. The business plan must be realistic and in line with the current trends in the market.

A market for the product

A team can come up with a service or product that is very innovative but lacks the necessary market intake to keep the business afloat. Ensure that proper research on the market is available to help you gauge the potential uptake of the products. Also, look at whether the market is big enough to accommodate the products.

As you make a choice, also consider whether the product is in line with your personal preferences. If you take time to conduct your due diligence, you could end up investing in a company which grows to be successful like start-ups such as Prismatic, Pandora, and Voxy.